Friday, Yukon Energy Corporation and Sherwood Copper inked a deal to supply electricity to the Minto mine through construction of a transmission line between Carmacks and Pelly Crossing.
Touted as a winner by the corporate players, it is powering fear among energy watchdogs.
They cite the risk to the publicly-owned utility’s ratepayers, and concerns about how an impending review of the pact will be carried out.
“This agreement is a major step in the process of creating a win-win situation for all stakeholders,” said Sherwood Copper president Stephen Quin in a release Friday.
“Grid power would benefit Sherwood’s shareholders with lower operating costs for the Minto mine and, therefore, higher profits, thus generating higher taxes and royalties to the Yukon government, and through them, to the Selkirk First Nation,” he said.
“Yukon Energy would gain infrastructure and a substantial stream of revenue by utilizing hydroelectric capacity that is surplus to current customers’ needs,” said Quin.
YEC and Sherwood hope electricity can arrive at the Minto copper mine — expected to go into production this spring — by the end of 2008.
If the deal’s approved by the Yukon Utilities Board, power would flow through a 138-kilovolt transmission line from Carmacks to Pelly Crossing. It is expected to cost between $17 and $23 million.
Under the deal, a 25- to 35-kilovolt spur line worth about $3.8 million would connect the mine to the main grid extension.
The utility will swallow the costs for the spur line. Sherwood will repay it over seven years. The company will only make interest payments over the first four years.
Under the agreement, Sherwood would also contribute $7.2 million over the life of the mine towards the grid’s construction costs.
Sherwood would also take or pay $24 million to YEC over eight years — $3 million each year — once power is available to the mine.
If Minto goes bankrupt or doesn’t go into production, Sherwood would still be obligated to make those payments under Friday’s deal.
Were Minto to go out of business, YEC is second in line to seize and Minto’s assets. First in line is an Australian merchant bank, which is providing most of Sherwood’s funding.
The power deal will save Sherwood about $4 million per year, said the company’s release.
But it won’t only benefit the company, Yukon Energy’s president David Morrison said in a release.
“We believe we have an agreement that not only protects Yukoners from any rate increases as a result of the line, but that will also bring significant benefits to the territory over the long term,” said Morrison’s release.
There are many environmental benefits of linking both hydro-electrical grids and removing the need for diesel generators, he added in the release.
The deal has been filed with the utilities board.
But interveners fear the agreement places electricity customers at risk.
There should be a full-fledged review,
energy watchdog Peter Percival said on Monday.
“Energy officials really need to be tested by cross examination,” said Percival.
He is pushing for YEC’s 20-year plan review hearings to be re-opened, if not a dedicated hearing for the deal itself, he said.
“You couldn’t justify the building of that line to Pelly Crossing or Stewart unless the mine was there,” said Percival. “So we need to make sure that it (the grid extension) is economically viable with the mine.
“It depends what the arrangements are with the mine. If you lose the mine, it’s a huge debt (for YEC and ratepayers),” he said.
“Is there some way they can escape? Not because they want to, but (if) the mine has to shut down for some reason?”
The best way to answer such questions is through open hearings, he said.
There, the story gets complicated.
While YEC has submitted the deal to the utilities board, which will hold a review, Percival fears it won’t allow for question—and-answer periods.
“My big concern is that the Utilities Board is not going to re-open the (20-year plan) hearing, that they’re simply going to have a paper hearing,” he said.
That would prevent cross-examination of YEC officials and would limit their responses to questions from interveners, he said.
And Percival doesn’t buy the proposal won’t affect electricity rates, either.
He points to the firm power rate offered to Minto in the deal of 10 cents per kilowatt hour as proof that electricity price could be impact.
“It’s going to affect rates,” said Percival. “We need a full general rate application to see how it all fits together.”
In its response to the term sheet of YEC’s now-signed deal with Sherwood, released in January, the utilities board also pushed for a general rate hearing.
There hasn’t been a rate hearing in the territory for more than a decade.
Elder found dead in Carmacks
A 63-year-old Carmacks man was found dead in the community on Sunday night.
He was found frozen outside in the snow, according to local women, who described the man as “frail” and “sick.”
Whitehorse RCMP was notified of the death at 5 a.m. Monday.
There were no obvious signs of foul play.
RCMP have called in the coroner and are still investigating the matter.